Taxation of Retirement Income
Tax & AccountingMarch 09, 2021

Retirement by the Numbers - Employer Plans, IRAs, and the Saver’s Credit

Savings Opportunities Increase for Some Retirement Plans

 

Both IRA contribution levels and contribution limits to employer‑sponsored programs are subject to cost of living adjustments (COLAs). IRA contribution levels remained the same from 2020 to 2021.

 

The allowable adjusted gross income (AGI) parameters for IRAs increased for 2021. Income thresholds for 2021 also increased under the Retirement Savings Contributions Credit, commonly known as the Saver's Credit, which is a nonrefundable tax credit that allows lower‑ and middle-income retirement plan participants to use elective contributions to reduce their federal income tax.

 

Employer-Sponsored Programs

 

RETIREMENT VEHICLE MAXIMUM 2021 EMPLOYEE CONTRIBUTION* CATCH-UP CONTRIBUTIONS
401(k), 457 and 403(b) plans $19,500 — pre-tax dollars
(unchanged from 2020)
$6,500
(unchanged from 2020)
SIMPLE plans $13,500 — pre-tax dollars
(unchanged from 2020)
$3,000
(unchanged from 2020)
SARSEP**
(Salary Reduction SEP)
$19,500 — pre-tax dollars
(unchanged from 2020)
$6,500
(unchanged from 2020)

 

 

IRAS***

 

RETIREMENT VEHICLE 2021 MAXIMUM CONTRIBUTIONS LIMIT* CATCH-UP CONTRIBUTIONS ADJUSTED GROSS INCOME (AGI) RESTRICTIONS
Traditional Deductible IRA $6,000
(unchanged from 2020)
$1,000
(unchanged from 2020)

For active participants in employer provided plan:

Single filers: under $66,000 phasing out completely at $76,000 (under $65,000 phasing out completely at $75,000 for 2020)

Married filing jointly: under $105,000 phasing out completely at $125,000 (under $104,000 phasing out completely at $124,000 for 2020)
Traditional Nondeductible IRA $6,000
(unchanged from 2020)
$1,000
(unchanged from 2020)
N/A
Roth IRA Nondeductible
$6,000
(unchanged from 2020)
$1,000
(unchanged from 2020)

Single filers: under $125,000 phasing out completely at $140,000 (under $124,000 phasing out completely at $139,000 for 2020)

Married filing jointly: under $198,000 phasing out completely at $208,000 (under $196,000 phasing out completely at $206,000 for 2020)

 

 

Retirement Savings Contributions Credit****

 

RETIREMENT VEHICLE 2021 MAXIUMUM CREDIT ADJUSTED GROSS INCOME (AGI) RESTRICTIONS
IRAs, Roth IRAs, SIMPLE Plans, 401(k)s and other qualified retirement plans

$1,000 for single filers

$2,000 for joint filers

Single filers: $33,000 or less ($32,500 for 2020)

Head of household filers: $49,500 or less ($48,750 for 2020)

Married filing jointly: $66,000 or less ($65,000 for 2020)

 

*Subject to COLAs.

**SARSEPs must have been established prior to January 1, 1997. The maximum contribution and catch-up amounts are the same as for 401(k), 457 and 403(b) plans.

***Individuals have generally until the tax filing deadline (April 15, 2021) to make contributions to their IRAs for 2020.

****Depending on AGI, the Retirement Savings Contribution Credit, commonly referred to as the Saver's Credit, provides a credit ranging from 10% to 50% with lower income taxpayers being eligible for a higher credit. For example, a married taxpayer filing jointly with an AGI of less than $39,500 making a $2,000 retirement plan contribution in 2021 could be eligible for a 50% credit, or $1,000. By contrast, if that same taxpayer had an AGI between $39,501 and $43,000, would be eligible for a 20% credit, or $400; an AGI between $43,001 and $66,000 would make that same taxpayer eligible for a 10% credit, or $200.

Source: Wolters Kluwer CCH® AnswerConnect, 2021
Permission for use granted.
Mark Luscombe
Principal Federal Tax Analyst
Mark Luscombe, a CPA and attorney, is the principal federal tax analyst for Wolters Kluwer Tax & Accounting. He is the current chair of the Important Developments Subcommittee of the Partnership Committee of the American Bar Association Tax Section and speaks on a wide range of tax topics. He authors monthly columns in Accounting Today and TAXES magazine. Prior to joining Wolters Kluwer, he was in private practice with several Chicago-area law firms where he specialized in taxation.